Top picks 2012: Enterprise Products Partners
Pipelines and processing plants put this MLP in the sweet spot as US gas production ramps up.
By Amy Calistri, The Daily Paycheck
Enterprise Products Partners LP (EPD), a Houston-based master limited partnership (MLP), operates over 50,000 miles of gas, crude oil, natural gas liquids (NGL) and petrochemical pipelines.
It also operates 25 natural gas processing plants, 58 tow boats, 117 barges, six offshore hub platforms, and terminals and storage facilities for all the energy products it transports. Basically, if you've got energy in North America, Enterprise has a way to move it to market and store it.
New technologies that allow the extraction of natural gas from shale have been a boon to the U.S. energy sector. U.S. shale gas production more than tripled between 2007 and 2010. Net imports of natural gas have fallen by about 1.2 trillion cubic feet over the last three years, primarily driven by these recently tapped resources.
Fresh domestic sources of natural gas are driving the demand for new and expanded pipeline systems. And this is providing growing revenues for pipeline service providers like Enterprise.
On Nov. 9, the MLP announced record results for the third quarter of 2011. Revenues rose 40% compared with the same period last year. It reported net income of 55 cents per unit, up from 18 cents per unit in the third quarter of 2010.
Enterprise raised its quarterly distribution to $0.6125 per unit. This was the 29th consecutive quarterly distribution increase for the MLP. At current prices, it has a healthy yield of 5.4%. And more dividend increases may be in the offing for investors based on expansion plans.
The MLP has roughly $5 billion of infrastructure projects coming online or under construction. Their biggest project is the $1.2 billion Acadian Haynesville Extension in Louisiana, which began service on Nov. 1.
It also has $2.5 billion worth of capital projects supporting the producers in the Eagle Ford Shale in Texas, which will start to come on line in 2012.
MLPs can pay a percentage of their distributions in the form of "unrelated business taxable income" (UBTI). There can be unfavorable tax consequence for investors if they earn more than $1,000 in UBTI in a tax-deferred account. For this reason, MLPs are best held in a taxable brokerage account.
As the U.S. prioritizes the production of domestic energy sources, Enterprise is sitting in the sweet spot. More global demand for NGL -- now driven higher by increased demand from Japan -- is also boosting its revenues.
MLPs have gained in popularity and their prices have appreciated over the last year. But EPD is a great position to put on your shopping list and buy on market dips.
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These companies won't soar like other plays in the sector, but they make for great income sources.
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